Finally, the old wheel of fate cut Barack Obama a couple of breaks last week. Within hours of each other on Thursday, BP capped the oil leak in the Gulf of Mexico and the Senate passed the financial regulatory reform bill. The former brought an end to three months of political agony for the White House as Americans watched those daily video feeds of crude oil gushing into the sea. The latter mercifully concluded an even uglier display – that of the Senate spending a year crafting a bill.

These events inspired a round of commentary agreeing that between healthcare and "finreg", Obama was the most consequential Democratic president (in terms of domestic legislation) since Lyndon Johnson in the mid-60s. And yet most of the buzz in the political press over the week involved more chest-thumping about how terrible things were for Obama. A Washington Post poll showing a majority disapproves of his handling of the economy spurred unusually fervent declarations that the Republicans were poised to regain control of the House of Representatives and, for the first time, speculation that now even the Senate might fall too, like overripe fruit, into Republican hands.

The explanation for this incongruity – a president of accomplishment whose party faces a wipe-out – is not complicated. It rests on the 9.5% unemployment rate. And in the conviction, shared by up to three-quarters of the public, according to polls, that the steps the administration has taken haven't helped and have maybe even hurt. This is maddening, because those steps have helped avert a depression, a possible run on banks, the probable bankruptcy of two major car makers and other nightmares.

It's standard operating procedure in US political journalism at this point to note grimly that trying to describe to the public how much worse it could have been is a fool's errand. I disagree with that strenuously, and think the Democrats could have done a far, far better job of it. For instance, thousands of small businesses have had work because of the stimulus bill: why didn't someone run a television advertising campaign featuring testimonials to this effect from business owners? Too late now: the storyline is set.

The Democrats' failure to mount a stronger case has had massive ramifications, because the storyline is much larger than merely that the stimulus has failed. It is that government is a failure. A poll came out last week that got less attention than the Washington Post survey but is more interesting because it gets at these deeper problems, and it heralds gruesome news for Democrats.

This survey was conducted by the White House's own pollster for a non-profit group called Third Way, a centrist thinktank. It found that by 48% to 43%, Americans think the administration's actions have made things worse, not better. By a whopping 54% to 32%, they prefer tax cuts for business over more government spending as a spur to growth. Finally, people were given a choice between two descriptions of corporations. Are they "the backbone of the US economy and we need to help them grow, whether they are large or small", or do they "have too much power, hurt the middle class, and government needs to keep them in check". By 55% to 37%, respondents chose the former.

American liberals need to think about these numbers. The great bottom-line hope back in November 2008 was that Obama was going to restore trust in government and prove it could solve problems. That hasn't happened. Put aside the Tea Party people. Independent voters who backed Obama over John McCain now give him 38% of their support. And the Third Way poll suggests more large-scale attempts to interject government into the economy won't fly. Maddening and ahistorical, insofar as history demonstrates that public investment helps a sick economy. But again, the Democrats have already lost this argument.

That's not an argument about the midterm elections. It's about the party of government's very raison d'etre. And it's one the Democrats have backed off from. Obama has tried, albeit without enough conviction or imagination. Certain Democrats in Congress have tried. But many other Democrats in Congress have decided the argument is a loser. It may serve their short-term electoral interests to say so, but it serves their party's long-term interests quite poorly.

Obama has a small gust of wind at his back now. The well is capped. He will sign finreg on Wednesday. His supreme court nominee Elena Kagan will cruise this month toward confirmation. These are important victories. But the larger war is being lost – to a bunch of people whose only agenda is to cut taxes on corporations and millionaires. Americans going back to work is the only thing that can reverse this.